Economics 101
Multiple Choice Questions for Final Examination
Miller
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1. Which of the following statements is correct? a. Real GDP is the total market value of the final goos an services prouce in !merica for sale in a "ear value in the prices of 1##$. %. &our %u"ing stock in the stock market is an example of investment sen!in" c. Potential Potent ial Real GDP is alwa"s greater than E#$ili%ri$m Real GDP . 'ocial securit" an welfare are examples of spening on in&rastr$ct$re . e. !ll !ll of the a%ove $. (he perio of the %$siness c'cle in which real GDP is increasin" is calle the) a. expansion %. peak c. recession . trough e. stagflation *. !ssume that+ that+ in the population+ #, million million people worke for pa" last week+ , million people i not work for pa" %ut ha %een seeking a -o%+ , million people i not work for pa" an ha not %een seeking a -o% for the the past several months+ an , million were uner age 1/. (he $nemlo'ment rate + given these num%ers+ is) a. , %. c. 10 . $0 e. , . ! t"pe of $nemlo'ment in which workers are in2%etween -o%s or o r are searching for new an %etter -o%s is calle 3333333 unemplo"ment) a. frictional %. c"clical c. structural . turnover ,. Consier three consumer goos) 100 of 4oo !+ !+ 100 of 4oo 5+ an 100 of 4oo C. 6n the %ase "ear+ 4oo ! sol at a price of 71+ 4oo 5 sol at a price of 71+ an 4oo C sol at a price of 71. 6n the current "ear+ 4oo ! sol at a price of 7*+ 4oo 5 sol at a price of 7,+ an 4oo C sol at a price price of 710. (he (ons$mer Price In!e) *(PI+ for the current "ear is) a. 100 %. *00 c. ,00 . /00 e. 1000 /. Which of the following is a ,loser, &rom $ne)ecte! in&lation ? a. workers with C89!s c. people who own (reasur" 5ills %. the mile class . people who own homes an have fixe2rate mortgages :. 6f the nominal interest rate on a checking account is $ an the inflation rate is * this "ear+ "ear+ the real interest rate is) a. , %. $ c. $;* . <1 e. * . Which of the following woul cause the !eman! curve for automo%iles to s-i&t to t-e le&t ? a. an increase in the price of the automo%iles %. an increase in the interest rate pai to %orrow mone" to pa" for the automo%ile c. an increase in %u"ers= incomes . an increase in the cost of prouction of automo%iles Please T$rn Over
>age $ #. 'uppose it is announce that inustr" anal"sts are preicting that !ecrease! oil supplies from 6ra will cause gasoline prices to rise+ %eginning next month. In t-e c$rrent ee/ + the announcement woul) a. shift the suppl" of gasoline right c. shift the eman for gasoline left %. shift the eman for gasoline right . have no effect on the eman or suppl" of gasoline 10. @!t the price of 7,00+ tickets for the 'uper 5owl are expensive. &et+ the are long lines of people who wish to %u" them. Man" people who esire tickets will not %e a%le to fin them.@ From this uote+ we know that the rice of 'uper 5owl tickets must %e) a. %elow euili%rium %. a%ove euili%rium c. eual to euili%rium 11. !ssume that the market for computers %egins in euili%rium. (hen+ there is a !ecrease in a rice o& Penti$m rocessors $se! in t-e ro!$ction o& com$ters . When the new euili%rium is reache+ a. the price an uantit" of computers will %oth have risen %. the price an uantit" of computers will %oth have fallen c. the price of computers will have risen an the uantit" will have fallen . the price of computers will have fallen an the uantit" will have risen 1$. !ssume that the market for the stock of Microsoft %egins in euili%rium. (hen+ %ot- %$'ers an! sellers e)ect t-at t-e ne Lin$) *a cometitor o& Microso&t Win!os+ ill %e a lar"e s$ccess0 re!$in" Microso&t sales. When the new euili%rium is reache+ a. the price an uantit" of the stock will %oth have risen %. the price an uantit" of the stock will %oth have fallen c. the uantit" of the stock will fall an the price will rise . the uantit" of the stock will fall %ut the effect on price cannot %e etermine e. the price of the stock will fall %ut the effect on uantit" cannot %e etermine 1*. !ssume that the market for Mexican pesos %egin in euili%rium. (hen+ t-e Me)ican econom' e)eriences a severe recession. 5ecause of the recession+ the Mexican companies lower their prices. !s a result of the recession an lower prices in Mexico) a. the ollar epreciates an the peso appreciates c. the ollar an the peso %oth appreciate %. the ollar appreciates an the peso epreciates . the ollar an the peso %oth epreciate 1. Which of the following is an example of ,ort&olio investment @? a. !n !merican places funs in a savings account in Canaa %. (ok"o 5ank of Aapan %u"s Bnion 5ank of the Bnite 'tates c. 'aturn Corp. owne %" 4eneral MotorsD %uils a new factor" in (ennessee . !n !merican puts 710+000 into a mone" market fun e. !ll of the a%ove
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1,. Which of the following woul cause the a""re"ate !eman! curve to s-i&t to t-e ri"-t ? a. an increase in purchases %" the feeral government %. an increase in real interest rates c. an appreciation of the !merican ollar . a ecrease in the mone" suppl" 1/. !ssume that an econom" %egins in macroeconomic euili%rium. (hen+ ta)es are si"ni&icantl' !ecrease! . !s a result of this change) a. there is expansion an inflation in the B' c. there is stagflation in the B' %. there is recession an eflation in the B' . there is expansion an eflation in the B' 1:. A lar"e increase in oil rices + such as the ones occurring in 1#:* an 1#:#+ will cause a. inflation an expansion c. inflation an recession %. recession an isinflation . expansion an eflation 1. !ssume that prouction in the Bnite 'tates is value at 710+000. ational income is therefore 710+000. 8f their income+ workers pa" 71+000 in taxes+ save 7,00+ spen 7+000 on consumer goos+ an spen 7,00 on imports. 5usinesses spen 71+000 in new investment spening. !n+ foreigners spen 7,00 on exports. 6n orer to avoi an" pro%lems of inflation or unemplo"ment+ t-e "overnment s-o$l! -ave a %$!"et !e&icit or s$rl$s o&1 a. 0 %. 7,00 surplus c. 7,00 eficit . 71+000 eficit e. 7$+000 eficit 1#. From 1##0 to 1##,+ the B.'. econom" was in a recessionar' "a . !ccoring to the classical economists + which of the following shoul have occurre? a. wages shoul have fallen which woul cause more workers to %e hire %. prices shoul have fallen which woul increase consumer spening c. interest rates shoul have fallen which woul increase consumer an investment spening . all of the a%ove shoul have occurre $0. Which of the following statements is;are true a%out the classical #$antit' t-eor' o& mone' ? a. (he euation of exchange is M G >Q %. (he classical economists assume that woul rise when real interest rates rise c. (he classical economists conclue that increases in the mone" suppl" cause increases in real 4H> an nothing else . all of the a%ove
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$1. !ssume that the Bnite 'tates an 4reat 5ritain are %oth on the Gol! Stan!ar! . (here is inflation in the Bnite 'tates %ut not in 4reat 5ritain. !s a result of the inflation in the Bnite 'tates+ a. 4ol woul leave the Bnite 'tates an go to 4reat 5ritain %. 4ol woul leave 4reat 5ritain an go to the Bnite 'tates c. (he !merican ollar woul epreciate . (he !merican mone" suppl" woul increase $$. !t an income of 7100+000+ 6 spent 7#0+000 on consumer goos. When m" income rose to 7$00+000+ 6 spent 71/0+000 on consumer goos. M" mar"inal roensit' to cons$me is) a. 0.# %. 0. c. 0.: . 1 e. 7:0+000 $*. National Disosa%le Income Ta)es Income (ons$mtion Investment Government 7100 7100 0 7 ,0 7 $, 7100 $00 100 100 1$, $, 100 *00 100 $00 $00 $, 100 00 100 *00 $:, $, 100 ,00 100 00 *,0 $, 100 /00 100 ,00 $, $, 100 :00 100 /00 ,00 $, 100 00 100 :00 ,:, $, 100 Bsing these num%ers+ t-e e#$ili%ri$m real GDP *e#$al to National Income+ is) a. *00 %. 00 c. ,00 . /00 e. :00 $. Which of the following woul cause cons$mtion to rise ? a. the 4H> Heflator rises %. a greater proportion of the population is %etween age $0 an *0 c. transitor" income increases . income is taken from poor people an given to rich people $,. Which of the following woul cause %$siness investment sen!in" to rise ? a. an increase in real interest rates from , to %. a ecrease in the corporate profits tax rate from to * c. a reuction of the investment tax creit from 10 to $ . sales falling in relation to capacit" from #0 to /0
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$/. !ssume that net exports increase %" 71 %illion. Euili%rium Ieal 4H> will rise %" more than 71 %illion. Explain wh". i.e.+ -' is t-ere a m$ltilier3 D. a. an increase in net exports appreciates the ollar causing a further increase in net exports %. an increase in net exports causes an increase in tax revenues which increases government spening c. an increase in net exports increases income causing an increase in inuce consumption . an increase in net exports causes an increase in the mone" suppl" $:. (he largest trans&er in the feeral %uget is) a. efense %. eucation c. social securit"
. welfare
e. police
$. (he largest ta) collecte at the &e!eral "overnment level is the) a. income tax %. sales tax c. propert" tax . social securit" tax $#. ! person ha an income of 7$0+000 last "ear an pai 710+000 in tax. (his "ear+ the person ha an income of 7100+000 an pai 7*0+000 in tax. (he personJsmar"inal ta) rate is) a. $, %. *0 c. ,0 . 100 *0. (he tax in uestion $# is) a. progressive %. regressive
c. proportional
*1. !ssume that Euili%rium 4H> is 7+000 %illion. >otential 4H> is 7,+000 %illion. (he marginal propensit" to consume is ;, 0.D. 5" how much an in what irection shoul "overnment $rc-ases %e change? a. increase %" 71+000 %illion c. increase %" 7100 %illion %. ecrease %" 71+000 %illion . increase %" 7$00 %illion *$. Bsing the num%ers in uestion *1+ %" how much shoul ta)es %e change? a. increase %" 71+000 %illion c. ecrease %" 7$00 %illion %. ecrease %" 71+000 %illion . ecrease %" 7$,0 %illion **. !ssume that Euili%rium Ieal 4H> is 7$0+000 while >otential Ieal 4H> is 71,+000. (he marginal propensit" to consume is #;10. !ssume that government ecies to loer ta)es %" 71+000. (o pa" for this+ it loers "overnment $rc-ases %" 71+000. !s a result of these two changes+ what is the new Euili%rium Ieal 4H>? a. 71#+000 %. 7$0+000 c. 7$1+000 . 71+000 e. 71+000
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*. Which of the following statements is true a%out t-e national !e%t ? a. 6n total+ it is higher now than it has ever %een %. Most of it is owe %" the feeral government to foreigners c. 6t means that a tremenous %uren is %eing passe to our chilren . 5ecause of it+ the Bnite 'tates is on the verge of %ankruptc" e. !ll of the a%ove *,. 6f the o&&icial &e!eral %$!"et shows a !e&icit of 7$00 %illion while the str$ct$ral %$!"et is has a s$rl$s of 7$00 %illion+ it can %e conclue that) a. the intent of fiscal polic" is ver" expansionar" %. there is h"perinflation c. the unemplo"ment rate is well a%ove the natural rate . state an local governments have large surpluses e. off2%uget spening is counte in the official eficit %ut not in the structural eficit */. (he P-illis c$rve escri%es the relationship %etween) a. the feeral %uget eficit an the trae eficit %. savings an investment c. the unemplo"ment rate an the inflation rate . marginal tax rates an tax revenues *:. 'everal a-ustments have %een suggeste to the official %uget eficit to %e a%le to measure the effects of the %uget eficit on the econom". For which of the following woul the a-uste eficit %e lar"er than the official %uget eficit? a. state an local %uget surpluses nee to %e ae to the official %uget eficit %. the effects of unemplo"ment nee to %e taken out of the official %uget eficit c. the effects of inflation nee to %e taken out of the official %uget eficit . off2%uget spening nees to %e ae to the official %uget eficit *. Which of the following is inclue in M56? a. gol c. checka%le eposits %. creit cars . mone" market mutual funs
e. stock
*#. Which of the following is true a%out t-e Fe!eral Reserve S'stem ? a. its seven 5oar mem%ers are appointe %" the >resient of the Bnite 'tates %. its main polic"2making %o" is calle the C58 c. it insures checking accounts against %ank failure . it accepts eposits from iniviuals an makes loans for mortgages e. !ll of the a%ove (ONTIN2ED
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0. !ssume that the Fe! increases t-e monetar' %ase %" 71 %illion when the reserve reuirement is 1;:. !s a result+ the mone" suppl" will) a. increase %" 71 %illion c. increase %" 7: %illion %. ecrease %" 71 %illion . increase %" 71* million 1. 6f the Fe! is-es to !ecrease *ti"-ten+ t-e mone' s$l' + it shoul) a. %u" (reasur" securities in the open market %. raise the iscount rate c. lower the reserve reuirements . raise marginal tax rates $. (he !eman! &or mone' will &all if) a. Ieal 4H> rises c. the 4H> Heflator rises %. real interest rates rise . people expect eflation soon *. !n increase in t-e mone' s$l' causes) a. interest rates to fall+ investment spening to rise+ an aggregate eman to rise %. interest rates to rise+ investment spening to rise+ an aggregate eman to rise c. interest rates to rise+ investment spening to fall+ an aggregate eman to fall . interest rates to fall+ investment spening to fall+ an aggregate eman to fall . 6f iniviuals &orecast &$t$re rices %' e)aminin" t-e rates o& in&lation o& t-e resent an! recent ast0 the" are using) a. aaptive expectations c. inflationar" expectations %. rational expectations . structural expectations ,. 6f t-e act$al $nemlo'ment rate is %elo t-e nat$ral rate o& $nemlo'ment + it woul %e expecte that) a. the rate of inflation woul increase c. the >hillips curve woul shift to the left %. wages woul fall . the natural rate of unemplo"ment woul fall /. !ccoring to the monetarist acceleration theor"+ in t-e lon"5r$n + a. the actual unemplo"ment rate will %e %elow the natural rate of unemplo"ment %. the actual unemplo"ment rate will %e eual to the natural rate of unemplo"ment c. the actual inflation rate will %e eual to the natural inflation rate . the %uget eficit will %e eual to Kero e. the mone" suppl" will %e growing at a constant rate per "ear PLEASE T2RN O4ER
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:. !ccoring to the monetarists + in the lon"5r$n + the P-illis ($rve is) a. vertical c. ownwar2sloping %. horiKontal . upwar2sloping . Which of the following statements is true a%out s$l'5si!e economics ? a. (he main change mae %" the tax laws of 1#1 an 1#/ was to increase marginal tax rates in orer to %alance the %uget %. (he 9affer Curve sa"s that+ if marginal tax rates fall+ tax revenues will rise+ an the %uget eficit will ecrease c. 6f the tax laws of 1#1 an 1#/ ha ha their intene effect+ consumption woul have risen+ causing an increase in %oth real 4H> an in the price level . !ll of the a%ove #. (hose who oose a (onstit$tional amen!ment to re#$ire a %alance! &e!eral %$!"et woul make which of the following arguments) a. Heficits are %a %ecause the" can cause crowing out %. 'uch an amenment coul force the government to unertake policies that woul increase a recessionar" gap c. Heficits can cause inflation %" increasing aggregate eman . 5uget eficits can cause an increase in the trae eficit %" appreciating the ollar ,0. 6f the mone" suppl" is) 7100 %illion 1$0 %illion 10 %illion 1/0 %illion 1$0 %illion
6f the interest rate is) 10 / $
(he interest rate is) 10 / $ 6nvestment spening is) 710 %illion $0 %illion *0 %illion 0 %illion ,0 %illion
!ssume that euili%rium 4H> is 700 %illion+ potential 4H> is 7,00 %illion+ the marginal propensit" to consume is #;10+ the interest rate is + investment spening is 7$0 %illion+ the mone" suppl" is 71$0 %illion+ an the reserve reuirement is 1;10. 7' -o m$c- an! in -at !irection s-o$l! t-e Fe! c-an"e t-e monetar' %ase3 a. increase it %" 7$0 %illion . increase it %" 7$ %illion %. ecrease it %" 7100 %illion e. ecrease it %" 710 %illion c. increase it %" 7#0 %illion END OF EXAMINATION
